Sunday, June 9, 2013

Foreign Direct Investment in Australia: The State of Play

This table from Austrade provides a good snapshot of the current stocks of foreign direct investment (FDI) in Australia.

FDI involves investment greater than 10 per cent in a company. Anything less is considered portfolio investment.

When considering foreign investment statistics we need to distinguish between stocks and flows. Stocks are the accumulated investments over time measured at a particular point in time and flows (or transactions) register investment over a period of time.

Foreign investment has expanded considerably since the global financial crisis, up by 40 per cent. In 2012 FDI increased by 8.6 per cent one of the few countries in the world to record an increase. This was on top of a 7.1 per cent increase in 2011.

According to Austrade:

As a percentage of GDP, Australia’s inward FDI stock averaged 36 per cent between 2007 and 2012, up from 34 per cent in the previous six years (2001 to2006). Increasing confidence by global investors in Australia saw its share of world inward FDI stock rise to 2.4 per cent in 2011, up from 1.6 per cent in 2001.

A lot of this is obviously related to the mining/gas investment boom and as this winds up, Australia's share will fall once again.

Chinese investment (3.0%) still remains relatively small in comparison to US (23.9%), UK (14.4%) and Japanese (11.1%) investment, as does investment form Asia in general.

The scale of FDI from Asian economies remains small. While Chinese FDI stock in Australia recorded a CAGR [compound annual growth rate] ofover 45 per cent in the five years to 2012, China makes up only three per cent of Australia’s total FDI stock.

Nevertheless Australia is the biggest single-country recipient of Chinese FDI

Australia maintained its ranking as the most significant recipient of Chinese outbound direct investment since 2006, accounting for 13.2 per cent of China’s total outbound investment over the eight years. By the end of 2012, China’s total accumulated investment in Australia reached US$51 billion.

It is important to remember that American, British and Japanese investment has been happening for a long time and to build up stocks takes time. Until the World War II most investment in Australia was from Britain. After the war, FDI from the United States into the manufacturing sector became most important. In the 1980s, investment from Japan caused widespread concern, although recent increases have been largely ignored.